ASB seeks more risk disclosure

Companies should disclose far more information about derivatives, such as swaps, forward contracts and options, and other financial instruments, the Accounting Standards Board says in proposals to be published today.

Though the board points out that past problems in this area have not been "accounting disasters", it is concerned about the extent to which directors are thinking about risk management.

While the 1985 Companies Act and certain standards already require some disclosure, the board does not feel there is sufficient focus on the main risks involved. In particular, it is worried that derivatives are often not recognised in balance sheets because they have been acquired for nil or minimal cost yet can change in value quickly and so expose companies to large profits or losses.

It believes that the proposals will help accounts users gain a more complete picture of companies' performance by giving them better information about the "risk profile".

In addition to bringing together and adding to existing requirements and best practice, the proposals, contained in Financial Reporting Exposure Draft 13, seek to bring Britain into line with policies developed in the US and elsewhere.

The proposals, which it is hoped will become a standard by the end of the year, allow for different levels of disclosure depending on a company's activities and the relative importance and complexity of transactions involving financial instruments.

The board has also responded to comments on the discussion paper published last year by recommending that companies that are operating in fields such as commodities not be required to meet full disclosure requirements if that would entail passing on commercially sensitive information.

It has also delayed issuing proposals on the other issue covered by last year's consultation document - measurement and hedge accounting issues - on the grounds that they would require far-reaching changes to current practice and therefore need to be more fully examined and debated.

However, accountants are warning that the proposed requirements published today could still be too complex.